A new study casts a shadow on the positive impacts of automatic enrollment, finding that automatically enrolled older workers receive less in annual total contributions.
The study, based on data for American workers age 55-69, confirms the findings of other studies that find that automatic enrollment leads to more workers participating in DC plans, but finds that automatically enrolled workers are less likely to contribute than those who take the time to enroll on their own.
Of course, it is this very tendency to leave one’s contribution rate in the hands of the plan default that probably explains the lower contributions, both by the individual and perhaps in the form of foregone employer contributions. Nonetheless, the report claims that the combined effect is that the retirement accounts of automatically enrolled older workers receive, on average, $900 less in annual total contributions, and their contribution rates are 1.6 percentage points lower than those of voluntarily enrolled workers.
What’s not known, however, is how much more those automatically enrolled workers had as a result of that design, than if they had been left to their own devices.
The study finds that the employers of auto-enrolled workers are more likely to contribute to their employees’ accounts than are the employers of voluntarily enrolled workers, and that employer contribution amounts and rates are higher among workers who are automatically enrolled.
Among the paper’s other findings:
- Automatic enrollment is associated with a higher probability of being included in a DC plan.
- On average, workers who are automatically enrolled in a DC plan tend to be less likely to contribute positive amounts than those who opt in.
- The correlation between automatic enrollment and combined (employer and employee) contribution amounts and contribution rates, is negative, despite controlling for a range of factors.
The paper, The Relationship Between Automatic Enrollment and DC Plan Contributions: Evidence from a National Survey of Older Workers, reexamines the determinants of 401(k) participation and contributions in the presence of automatic enrollment using nationally representative data from the Health and Retirement Study (HRS) for 2006 through 2012.
